A debt management company's main goal is to help people or businesses who are in a lot of debt get out of it. Instead of just giving the consumer more credit, the company offers services that allow the consumer to combine all of their debts into a single, more manageable payment that can be made in instalments.
Debt management and consolidation are good options for businesses that are close to going bankrupt. When more than 40% of the income left over after taxes is used to pay off debts, this is often seen as a red flag. Most people think that anything above 40 percent is too much to handle.
Professional debt management companies have experienced counsellors who are trained to look at your income, your expenses, and your spending habits and tell you what needs to be done. They can also talk to your creditors and try to get you other things, like lower interest rates, more time to pay back your debts, etc. Your credit counsellor will even talk to the rude and sometimes unpleasant people who work for collection agencies if they have been bothering you. This is a blessing in and of itself.
Keep in mind that there are different kinds of debt management companies when choosing one. Some are for profit, while others aren't. The for-profit organisations usually charge a pretty big fee, but they almost always offer great services. Non-profit organisations are often paid by the government through grants and funding, so they may be overworked and behind. Choosing either type of business should be a big deal for you, and you should do some research to find the best option for your situation. When choosing an agency, one thing to think about is how often they pay your debts. If they pay weekly or often, you'll get lower interest rates and won't have to charge them any late fees. If they don't pay out regularly, there may be some financial instability or a lack of reserve funds. As a consumer, these are big red flags, and you should probably put your trust and money somewhere else.
You don't have to hire an agency to manage your debt, though. There are some simple things you can do on your own. Here are some suggestions:
First, you should figure out how to handle your credit card debt. For example, you could use a debit card instead of a credit card. By only spending money you already have (or have in the bank), you can avoid paying interest, which means more money in your pocket. Credit cards are the main way that people get into debt. If you are uncertain about a debit card, trade the credit card in for the old fashioned and very hard earned cash. If you don't think you'll lose your credit card or get a debit card, you should at least find the card with the lowest interest rate and move your balances to that one.
- If you own a home, you might also think about getting a home equity loan to pay off your debts. Most of the time, the interest rate on a home equity loan is much lower than the interest rate on a credit card. This is another way to save money in the long run. Keep in mind, though, that if you keep spending recklessly, your home is now collateral on the loan, and you could lose it if you don't pay back the loan.
- Think about whether you should combine your debts or not. By getting a debt consolidation loan, you can combine all of your debts into one loan, reducing your risk and the amount you have to pay. The interest on the consolidation loan will be less than what you would pay on all of your other debts together. This will save you a lot of money over time.
- Think about selling things you don't need or no longer use. Any extra money you make from sales could be put toward paying off your debts.
Any of these ways to deal with debt will help your personal or small business financial plan and get you out of debt and out of your worries before you know it.
